- Introduction
Wherever there are people, disputes are bound to arise. So how can these disputes be resolved? Disputes can be resolved through various modes of Dispute Resolution.
Now, you may ask what Dispute resolution is. Dispute resolution is the process of resolving a dispute between the parties and it can be required in several scenarios. For example, a person may be in dispute with his neighbour due to loud music played by them. Such disputes can be settled in court.
But what about a company that has a dispute with its employee who uses the company’s trade secrets for his benefit? The company would not prefer to resolve this dispute in court, as there is a high chance that the trade secrets might be revealed during the legislation. So what other choice does the company have? The company has various methods other than litigation, which is often referred to as Alternative Dispute Resolution (ADR). These methods often protect and preserve the confidential information of the parties to the dispute. ADR comprises many methods such as Arbitration, Conciliation, Mediation, Negotiation, and Lok Adalat. Among them, Arbitration is the most preferred mode of dispute resolution.
Though there are various modes of dispute resolution, the two primary modes that dominate the field of dispute resolution are Litigation and Arbitration. Both modes serve immensely in resolving disputes but still, they vary significantly in their mechanism, procedures, etc. It is crucial for businesses and also the parties to the Contract to understand the differences between the Dispute mechanisms while deciding their mode of resolving disputes. While Litigation is pursued by going to courts and may be burdensome to some parties to the dispute, Arbitration offers a more cost-effective, confidential, and faster mode of resolution.
In this blog, we will be decoding the differences between both the modes of Dispute resolution along with their pros and cons and offer valuable suggestions for choosing the right mode of dispute resolution.
Who does not want quick and affordable justice? Everyone wants to resolve their disputes affordably and speedily. Nobody wants to pursue a legal battle for years in the legislation process and as people felt the litigation procedures to be burdensome, it gave rise to the popularity of ADR. Alternative Dispute Resolution (ADR), as the name says, is an alternate mode of resolving disputes which have helped many business entities and parties to the contract resolve their disputes in a time-bound manner which many companies prefer, while resolving their disputes in the long run.
- Arbitration
Among all the modes of ADR, Arbitration has emerged as the most utilized mode of dispute resolution. The reason behind it is that Arbitration is a private dispute resolution where parties to the dispute, agree to submit their disputes to one or more arbitrators, who can then render a decision, which will be binding on the parties. Unlike Mediation, Arbitration involves a neutral third-party arbitrator who resolves the disputes rather than those involved in the dispute and delivers a binding decision. Just like in Litigation, where the judge delivers the judgment, thereby resolving the dispute, in the same way, Arbitration has a third-party neutral arbitrator who is entitled by the laws to deliver binding decisions. The parties to the dispute begin the process of Arbitration by getting into an Arbitration agreement and selecting a neutral arbitrator who then conducts a hearing where evidence and arguments are presented before the arbitration or its panel. The binding decision delivered by the arbitrator which is known as an award is final and enforceable in most jurisdictions.
- Litigation
As discussed about the Arbitration process above, you may ask, with all the above factors supporting Arbitration, why will businesses still pursue Litigation for resolving their disputes? Why do parties still go to court? Who wins in the litigation Vs arbitration tug-of-war, when litigation is the answer? Let’s figure it out.
Unlike Arbitration, Litigation involves the parties resolving their disputes by taking them to court and resolving them through the judicial system. It often involves formal legislation procedures which are mostly governed by relevant rules and laws. It is the traditional form of resolving disputes where a judge delivers the judgment in favour of one party and against one party. So unlike arbitration, where the arbitrator renders a decision that is in favour of both parties, in Litigation, only one party wins whereas the other party loses. In Litigation, the parties are referred to as the plaintiff and the defendant. All the arguments along with the submission of evidence take place before the judge in the court, making the process fully transparent. Though litigation cases may extend to some years long but the judgment delivered is mostly effective and in the interest of justice. The primary benefit of litigation is that the parties to the dispute can appeal against the judgment in the Appellate Court and can also reverse the judgment passed by the lower court which maintains the justice system in check. There are multiple levels of level of appeal, starting from the Sessions Court to the Supreme Court which is the Apex Court. Again, such a thing isn’t possible in Arbitration as the award rendered by the arbitrator is mostly binding and the parties have little to no say in it unless there are irregularities in the decision. Though litigation is famous for long battles being fought, the interesting fact is that most litigation cases are resolved outside the court itself through settlement. As it’s famously said a bad settlement is still better than a good lawsuit. Since no Counsel can always guarantee a good outcome from the litigation case, so it is always in the best interest of both the parties to settle their dispute.
- Pros and Cons of Arbitration & Litigation
Let’s dive into the pros and cons of both the popular modes of Dispute resolution i.e. Arbitration & Litigation.
- Pros of Arbitration:
Arbitration in many ways outperforms Litigation and fills the gaps that litigation leaves behind. It has several benefits that make it easier to resolve disputes such as:
- Confidentiality
One of the key benefits of Arbitration is that the proceedings are private without the involvement of any third party other than the neutral arbitrator who is selected by both parties which make sure that the details of the dispute remain confidential. This confidentiality is even more beneficial to companies who want to protect their trade secrets which are hard to keep confidential in open court proceedings. In Arbitration, the proceedings are kept private, so the concern of the dispute going public by the media is often not there. As the place of the proceedings being conducted, the cause of the dispute, and the parties to the dispute, all are kept confidential. When specified in the contract, even the decisions rendered by the arbitrator are kept confidential.
- Cost-effective & Speedy process
Though the process of Arbitration is not cheap, it is still a cost-effective option when compared to the litigation process as the Arbitration process generally lasts for some years which makes it a speedy process thereby reducing the costs of dispute resolution. Also, when the arbitration clause is drafted well, it can make the dispute resolution of the parties to the contract, more affordable and faster.
- Flexibility & Control
The arbitration process is flexible as the parties mutually decide the arbitrator along with the place and jurisdiction where they want the disputes to be resolved. They also have control when choosing the arbitrator as they can choose the arbitrator who is specialized in the relevant field.
- Beneficial to both the parties
In Arbitration, the arbitrator renders an award that is beneficial and in the best interest of both parties. Unlike litigation, where one party wins and the other loses, in Arbitration both the parties win by getting a mutually beneficial decision.
- Cons of Arbitration
- Hard to Appeal
In Arbitration, if the parties to the dispute are not satisfied with the decision rendered by the arbitrator, there is very little room for appeal or no room at all, if the decision is legally binding. The lack of appealing rights can be a disadvantage to the party if the arbitrator makes an error in its decision.
- Potential for Bias
Due to the nature of the Arbitration procedure being private, there is room for biases in the decision that is delivered by the arbitrator, in cases where the arbitrator is chosen by one of the parties.
- Costs can be high
If the case is complex or if there are many arbitrators, the cost of the arbitration process can escalate due to the complexity and technicalities involved.
- Parties forced into Arbitration
Some people are forced into Arbitration through the arbitration clause in the Contract and even if one of the parties wants to appeal it in court, they cannot, as they are bound by the decisions of the arbitrator which cannot be reviewed unless there are irregularities in the decision.
- Pros of Ligation
Though Arbitration is preferred in commercial disputes there are some aspects where litigation is more beneficial to the parties. Below are a few of them:
- Public Record
In litigation, disputes are resolved in open court, so its procedures will create a Public record which can be beneficial for setting legal precedents and also ensures transparency in the process.
- Uncooperative Parties
Litigation is often preferred over Arbitration when any of the parties to the dispute are not ready to resolve their dispute through any ADR and also when any of the parties do not want to resolve their dispute, in such cases litigation is the best dispute resolution mechanism, as it compels the parties to resolve their disputes when the court renders its judgment to do so.
- Right to Appeal
In litigation, the parties have a right to appeal against the judgment of the court, if any party is aggrieved by it, they can appeal in the higher court.
- Cons of Litigation
- Time-Consuming
It is not a secret and everyone is aware of the downside of litigation that disputes in court go on for years, which makes the resolution process a time-consuming mode of resolution. No company or business wants to invest their time and money, where the resolution of the dispute may take years.
- Expensive
As litigation procedures are lengthy and take years, so for the entire time, the parties have to bear the expenses such as attorney fees, court fees, and other costs which are associated with the legislation process.
- Public Exposure
When disputes between the companies involve trade secrets, no company would prefer to expose them to the public and thus may not prefer litigation. Also, many companies or business entities may not want to disclose the details of the dispute to the public as it can attract unwanted publicity along with tarnishing the reputation of the companies, which will not be feasible for the parties.
- Suggestions & Conclusion
In the legal tug-of-war between Arbitration & Litigation, it is upon parties to decide their preferred mode of dispute resolution according to their needs and priorities. Before choosing any mode of dispute resolution, the parties, need to analyse the nature of their dispute, the confidentiality needed in the resolution process, and also the desired speed of resolution. Also, in disputes that need special expertise to resolve or when confidentiality is the priority, in such cases, Arbitration must be the choice. Whereas, in cases where setting precedents or having the right to appeal is the priority, then Litigation must be the preferred form of dispute resolution. Drafting unambiguous, clear arbitration clauses in contracts may help parties to the dispute to prevent the cons of arbitration, making it a good choice for dispute resolution. In the end, the key is to select the mode of dispute resolution that is in the best interest of all the parties involved, which may avoid any further dispute ensuring speedy and efficient resolution of the dispute.
Authored by Merwyn Nazareth, Rizvi Law College, Mumbai University.
References
What is dispute resolution? – University of Lincoln
What is Arbitration? (wipo.int)
Arbitration vs. litigation – iPleaders
Arbitration vs. litigation: the differences | Legal Blog (thomsonreuters.com)
Mediation Vs. Arbitration: Differences, Pros & Cons – Forbes Advisor